From 1996 through 2005, plaintiffs’ lawyers filed an average of 52,000 lawsuits each day in state courts. Of these, 7,800 were tort cases. According to the Pacific Research Institute’s (PRI) “Jackpot Justice” economic analysis, the tort system “imposes an annual ‘excess tort tax’ of about $2,000 for each American.” The conservative estimate of PRI’s economists is that excessive tort costs in 2006 were $589 billion, about equal to a 7 percent tax on consumption or a 10 percent tax on wages.
To understand the roots of America’s legal crisis, we have to look at the deeper currents of American culture. Television dramas about the law and courts continue to be a national addiction, the way Westerns once were. Just like those Westerns, today’s legal drama needs a good guy and a bad guy, and these legal thrillers are invariably told from the side of the plaintiffs’ bar. Saturated in this drama, our culture is in danger of forsaking the rule of law. To understand what is really going on, we need to move behind the sound stage and address the seven fictions that some on the plaintiffs’ bar use to frame their cases and exploit the law.
Myth No. 1: Corporations put profits ahead of safety and honesty, and large damage awards are the only way to get corporations to act responsibly.
The executives that run corporations are like the rest of the individuals in our world. Some are bad actors, some are not. There are exceptions—Enron and WorldCom readily come to mind—but most corporate managers care about the safety of their customers. They are not, as Ralph Nader would say, “moving on all fronts to advance narrow profit motives at the expense of civic values.”
Yet the belief is that corporations routinely harm customers for profit, and only punitive damages can set things straight.
The compelling evidence, though, is that punitive damage awards do not make the marketplace any safer. This is confirmed by the research of W. Kip Viscusi, a law and economics professor at Vanderbilt University Law School. While at Harvard in 1998, Viscusi wrote: “States with punitive damages exhibit no safer risk performance than states without punitive damages.” Moreover, there were no overall differences with regard to safety and environmental performance, and “there is no deterrence benefit that justifies the chaos and economic disruption inflicted by punitive damages.”
Since punitive damages don’t work, there is, Viscusi found, no need to augment the safety incentives that are already provided by the market, government regulation and compensatory damages. Any penalties that go beyond those needed to create an efficient level of safety will produce redundant levels of safety, which add costs. The higher costs, of course, lead to higher prices and other adverse economic effects.
We also learn from Viscusi’s work that punitive damages are applied so capriciously they are regarded by companies as random visitations of disaster, like tornadoes.
Myth No. 2: The so-called “liability crisis” is an invention of corporations to limit their liability for wrongdoing.
The American Association for Justice, formerly the Association of Trial Lawyers of America, has argued that “tort claims do not clog our courts.” But that flies in the face of every civil attorney’s experience.
In 2002, a report from the president’s Council of Economic Advisers revealed that the U.S. has the most expensive tort liability in the world. The cost is more than double the average of other industrialized nations that have been studied. The CEA report also noted that the cost of lawsuits in America “is far more than enough money to solve Social Security’s long-term financing crisis.” For an American family of average income, excessive tort costs would provide $8,000 toward their annual mortgage bill.
Nowhere does lawsuit abuse inflict more harm than in the arena of medicine. According to Jury Verdict Research, Inc., the medical malpractice median jury award in 2007 was $1 million, 43 percent higher than the $700,000 median in 1999. For the years 2006 and 2007, 17 percent of all awards exceeded $1 million and the average medical malpractice jury award in 2007 was $4,043,416. Hospitals pay hundreds of thousands in defense costs even when they win at trial.
These costs and awards increase the premiums that doctors pay for malpractice insurance, which in some states range up to $200,000 and more annually. One Pennsylvania medical college pays 15 percent of its annual budget just for liability premiums. Those inflated costs are passed on to patients. In some cases, the higher premiums cause doctors to give up their practices, limit their services to patients without health conditions that raise litigation risks, or move to a state where the tort system that isn’t as punitive and the malpractice insurance is more affordable.
Tort costs restrict Americans’ access to health care. Doctors weary of paying high malpractice premiums have left their practices. Several states face a growing crisis with medical centers closing and doctors leaving their states by the thousands.
Clearly, there is a runaway tort problem in this country and no amount of denial can change that.
Myth No. 3: Punitive damages are rarely awarded; those that are awarded are almost always substantially reduced in post-trial proceedings.
There is some truth to this. But it is grossly misleading. Most cases do not result in punitive damages for the simple reason that most defendants are terrified of going to trial with the possibility that they might get hit with unmerited and unpredictable heavy punitive damages. The system coerces defendants to settle, so rather than fight, they opt to pay the blackmail.
According to Bureau of Justice data, only about 2 percent of tort, contract and real property cases make it to jury trials in state courts. Cases are often settled before they reach that stage and they are settled on the terms demanded by plaintiffs. According to Yale Law School Professor George Priest, the mere specter of “unlimited punitive damages affect 95 to 98 percent of cases that settle out of court before trial. It is obvious and indisputable that a punitive damage claim increases the magnitude of the ultimate settlement and, indeed, affects the entire settlement process, increasing the likelihood of litigation.”
While some large punitive damages are indeed reduced on appeal, their size inspires other plaintiffs to seek similarly large amounts. Each eye-popping verdict has an unseen but powerful effect on the greater mass of settlements.
The system also coerces defendants to settle through laws that require the posting of an appeal bond that for many is unaffordable. These bonds are a holdover of archaic state laws, enacted at a time when verdicts were much smaller. “In the new world of billion-dollar verdicts,” writes legal reform analysts Victor E. Schwartz and Leah Lorber, “the bond requirements have brought about a new and unanticipated result: They may deprive a defendant of his or her right to an appeal. The defendant, no matter how large, simply cannot afford to post a bond, so he settles for a lesser amount and gives up his right to an appeal.”
Myth No. 4: Class action lawsuits always serve the public good by marrying efficiency with justice.
Class actions allow for the convenient and efficient grouping of plaintiffs sharing a common complaint to link up in a single lawsuit. When used correctly, class actions allow courts to resolve in one action many smaller, similar claims that might otherwise remain unheard because the cost of any particular suit would exceed the possible benefit to the claimant.
Class actions also allow defendants to focus their energies on resolving all claims in one lawsuit, and prevent courts from being flooded with duplicative claims.
But the perverse incentive of contingency fees has warped class-action litigation. The character of U.S. class-action law underwent a radical transformation in 1966 when jurists reversed the “opt-in” rule. In other words, people could suddenly be dragooned as plaintiffs in a lawsuit unless they affirmatively notified the plaintiffs’ attorneys they wanted out.
The result has been the practice of clientless law. Pinellas County, Florida Circuit Judge W. Douglas Baird described one class-action case as the legal “equivalent of the ‘squeegee boys’ who used to frequent major urban intersections and who would run up to a stopped car, splash soapy water on its perfectly clean windshield and expect payment for the uninvited service of wiping it off.”
Not only do class actions often address specious “injuries,” they often cheat the very clients they purport to serve. The exemplar of class-action abuse remains the infamous BancBoston case. In this suit, one of the bank’s customers, who didn’t know he was a plaintiff in the case, was awarded a $2.19 refund on his account, allegedly to compensate him for the bank having overcharged escrow account customers. He was also hit with a $91.33 charge from the bank to cover the legal fees it incurred in the suit. The plaintiffs’ attorneys were awarded more than $8.5 million. The largest award to any BancBoston plaintiff was $8.76, which isn’t much but is worth more than a lot of class-action plaintiffs get: nearly worthless coupons.
Myth No. 5: Litigation protects consumers when regulators fail to act.
In the federal regulatory process, safety policy is developed by an expert-led investigation of risks. In the tort process, where the stakes are the titanic profits of the blame industry, the investigative process is anything but scientific.
It is also a process in which pertinent facts are concealed through the arcane and discriminatory rules of evidence of the legal system. In 26 states and the District of Columbia, for example, juries are not allowed to hear that a plaintiff injured in a car failed to wear a seatbelt. Incredibly, the fact that the driver at fault was drunk or drove through a red light is not admissible in many courts.
Even when scientific research and policy decisions from the regulatory arena are included in a trial, they are often presented in a haphazard and skewed manner. On the basis of courtroom polemics, juries with no expertise are asked to render verdicts that, in effect, set new safety benchmarks.
For example, regulators can determine that a given component is either safe or defective. Twelve juries can find that component to be safe. But if the 13th jury finds it defective, and reinforces that decision with a staggering verdict, then it sweeps away the methodical deliberations of the other juries and federal regulators alike.
While regulators look ahead so that they might save lives, tort law looks back, seeking to use hindsight bias to assign blame for accidents that have already happened. That, of course, is exactly what it was designed to do. The problem arises when plaintiffs’ attorneys adopt the guise of regulators and pretend that they are seeking to make products safer. In fact, they often threaten the safety of products—by dictating design changes based on a single accident—while ignoring (as regulators cannot) the whole universe of data.
While a tort system can never be an effective regulator, it is quite effective in taking power away from the proper deliberative, legislative and regulatory authorities. One-time Alabama Attorney General Bill Pryor, now a federal judge on the 11th Circuit of the U.S. Court of Appeals, has warned that regulation through litigation has the power to “shift the awesome powers of legislative bodies—the powers to control commercial regulation, taxation, and appropriation—to the judicial branch of government.”
Rather than protect consumers where regulation fails, litigation undermines the very safety that it supposedly promotes.
Myth No. 6: Corporations settle lawsuits to cover up their wrongdoing.
This is a popular theme spread by movies, books and the press, and has caused corporate defendants to labor under the perception of guilt. This is especially true when defendants are forced to settle rather than face a ruinous class-action judgment. Few people, other than lawyers, know that virtually every certified class action ends in settlement: to face a class action is to risk the corporate death penalty.
In a world where punitive damages of $100 million or more are no surprise, corporations tend to settle class actions before they get to juries. To go to a jury trial can make a game of Russian roulette seem like a reasonable gamble.
The plaintiffs’ lawyers and their proponents have convinced much of the national jury pool that corporations are not a collection of hard-working people with kids to put through college, but rather monolithic entities to be feared. The irony here is that it is the legal system itself that can be a heartless, monolithic monster.
Myth No. 7: Like David against Goliath, the trial lawyer is outgunned and outclassed by powerful and resourceful corporations.
This is the most cherished trial lawyer myth that there are a few Robin Hoods out there struggling against the armed might of the powerful sheriff (see related charts, page 25). But Robin Hood gave to the poor. Six trial lawyers and their firms took more than $5 billion as fees for their firms from tobacco litigation—money that many believe belong in state treasuries for health care and education.
The plaintiffs’ bar is no outgunned underdog. The American Association of Justice offers courses in how to sue particular companies. The lawyers themselves have become quite wealthy. Joe Jamail of Texas has a Fortune 500-sized net worth of $1.2 billion. Another trial lawyer, Frederick Furth of San Francisco, owns his own 1,200-acre vineyard in Sonoma County. Another, Wayne Reaud of Beaumont, owns a newspaper. And, of course, Peter Angelos owns the Baltimore Orioles.
The plaintiffs’ bar is a power lobby like none other. Over the last 10 congressional election cycles, the legal profession has led all other groups in campaign contributions with the exception of 2008, when it was second. In that cycle alone, it gave more than $233 million in political contributions. More than three-fourths—76 percent—went to the Democratic Party. The legal profession is the top political contributor in the current campaign cycle, as well, having given more than $31 million, 82 percent of it to Democrats. It’s dishonest for plaintiffs’ lawyers to liken themselves to a little guy going up against a giant.
A Florida judge described one class-action case as the legal equivalent of the “squeegee boys” who expect payment for the unvited service of window cleaning.
Rather than protect consumers where regulation fails, litigation undermines the very safety net that it supposedly promotes.
Steven B. Hantler is the chairman of the Foundation for Fair Civil Justice. Contact him at shantler@foundationforfairciviljustice.org or visit www.foundationforfairciviljustice.org.